Industrial Park Stabilization

Background & Challenges

Westcore acquired this two building, 770,000 SF project in mid-2010. At the time, the economy was still deep in recession and the debt market for commercial real estate was filled with uncertainty. Market rents, even in primary markets like Commerce and Buena Park, were in rapid decline. With more than 50% of the rent roll expiring within the first two years of acquisition, material erosion of NOI at this 98% leased project was a significant risk. The debt market was also a significant challenge. A loan at 65% loan-to-cost was ultimately secured, but at an interest rate of almost 8% with high amortization.

Actions

One of Westcore’s core competencies is its ability to establish strong tenant relations. Westcore’s leasing team immediately went to work on this by understanding the needs of the tenants. These tenants were also suffering through the recession and feeling uncertain about the future. Westcore was able to create a “win-win” by giving near term concessions (tenant improvements, free rent, blend/extend) in exchange for longer lease terms and reasonable base rent. Westcore also completed a number of cost effective cosmetic improvements that were highly visible to the tenants.

Results

In less than 18 months, Westcore leased 77% of portfolio while holding rents above market. The NOI went from $5.3M at time of acquisition with 50% near-term rollover to $4.6M at time of disposition with 5% near-term rollover. This ultimately resulted in a sale of the assets at 50% above purchase price in a total hold period of less than two years.